How Small Businesses Are Destroyed (from the “Cliff Notes” version of “Healing Our World”)

The last post described how jobs, the vehicle of modern day wealth creation, were destroyed through minimum wage laws. Historically, many people chose to create their own jobs by becoming entrepreneurs. The United States was once considered “the land of opportunity” because there were few restrictions on those who wanted to start their own business.

Today, licensing laws prevent many people, especially the disadvantaged, from creating their own jobs, especially in their homes. I rented apartments to a couple of women who were supporting themselves and forced on to welfare by these laws.

One was sewing curtains in her apartment for businesses. Another watched children who lived in adjacent apartments. Neither business created extra traffic.

The city government hounded these women because they didn’t have a business license and their apartments weren’t zoned for commercial activities. They even called me and asked me to evict them, which I refused to do. When I asked them how they thought these women would get by without an income, they simply said, “They should be on welfare anyway.” Eventually, the women, terrified by the threats from the city, ended up on the dole.

The disadvantaged can’t win. The minimum wage laws keep them from being paid to train. Licensing laws that have nothing to do with safety keep them from being entrepreneurs. Luckily, the libertarian Institute for Justice is coming to the rescue by representing small entrepreneurs pro bono when they run up against these discriminatory laws.

When a homeless man, Ronnie Forston, tried to start a shoe shine business in Atlanta, he was arrested seven times in 18 months. His crime was shining shoes without a license! The license itself was $175, and he needed a vendor’s permit and a home address to get it. Ronnie was homeless, so he didn’t have an address. In addition, the city had frozen the issuance of vendors’ permits. Consequently, Ronnie couldn’t get a permit even if he had applied! Ronnie’s plight clearly illustrates how licensing laws keep the poor from creating any wealth at all.

Minimum wage and licensing laws destroy the lower rungs on the Ladder of Affluence, condemning the disadvantaged to a lifetime of poverty. Instead of being paid while getting training and experience, the disadvantaged must pay for schooling or an expensive license. Instead of having the opportunity to work their way up the Ladder of Affluence, they are not allowed to even attempt the climb!

In the United States, 80% of millionaires acquire their wealth in a single generation. Half of them climb up the Ladder without any inheritance, college tuition from their parents, or even substantial financial assistance. The poor can aspire to affluence if they can just get a start.

If licensing laws create poverty, poor countries might be expected to have more of them. Indeed they do. As an experiment, ABC reporter John Stossel tried to open a store selling Frisbees that met all regulatory requirements. In Hong Kong, the entire process took hours. In New York City, the multitude of form took weeks; in India, years of paperwork were required and there was no guarantee that a license would even be issued! Consequently, countries with the most licensing laws also have the largest black markets.

Fortunately, the damage done by licensing laws (regulations) can be reversed. For example, between 1980 and 1985, the number of federal regulators in the United States decreased. More than 150 private sector jobs were created for every regulator who left (Figure 4.3 from Healing Our World).

During the period of job increases, the number of black-owned businesses nearly doubled. We can create more jobs (and wealth) for the disadvantaged by simply ending the aggression of licensing laws and regulations!

In spite of the destruction caused by the aggression of licensing laws, we sometimes hesitate to abandon them. We believe that they protect us when a mistake by a service provider, such as a doctor or electrician, can be life-threatening. In the next installment, we’ll see that aggression, as usual, harms the very people it is supposed to help.

The next post will be “Harming Our Health.” If you’d like to learn more about how licensing laws hurt the disadvantaged before the next post, check out Chapter 4 of the 1993 edition of Dr. Ruwart’s book, “Healing Our World,” in her Free Library at http://www.ruwart.com/product/healing-our-world. You can also buy the updated 2015 edition there.